Transcript The Evolution of Outsourcing

The Evolution of
Outsourcing
Michael L. Videira
Faculty Sponsor: Dr. James Kroes, Supply Chain Management
Agenda
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Brief Background of Michael Videira
Why This Topic?
Brief History of Outsourcing
Growth of Outsourcing
Reasons for Outsourcing
Discussion of the Study
Data Collection Process
Analysis
Findings and Implications
Michael Videira in Brief
 Cumberland, RI
 Accounting Major
 Ernst & Young
 Printed Circuit Board Assembly Business
Why this Topic?
 CHINA THIS, CHINA THAT, GLOBALIZATION
 Traveled to Wuhan, Beijing, Xian, and
Shanghai, China in Summer of 08.
 Problem – Companies choice of country.
 What to Outsource
 Where to Outsource
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Prevent situations such as Mexico and Venezuela
Brief History
 What is Outsourcing?
 an act of moving some of a firm’s internal activities to
outside providers (Schniederjans 2005).
 What is Offshoring?
 Moving a business operation to a foreign country.
 When did it all start?
 Before WWI but died out due to the war
 General Agreement on Tariffs and Trade (1947)
 1995 World Trade Organization
 North American Free Trade Agreement (1992)
Growth of “Globalization”
 Growth (global outsourcing market)
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$297 billion in 07
$450 billion in 2010 (“Outsourcing growth to reach 62%”).
 In 15 years # of mins. of international
telephone calls has gone from 40 billion in
1991 to about 135 billion in 2004, (Boudreaux
2007)
Reasons for Outsourcing
 Cost Savings
 Labor
 Gain Outside Expertise
 CPA or Mechanic Shop
 Improved Service
 Able to produce products more quickly
 Focusing on Core Competencies
 Competitive Advantage Strengthening
 Technology
 Rapid changes.
 Any Negatives?
 Only 54% of companies are satisfied with their
Outsourcing (Craumer 2002).
The Study
Four Categories
 Technological
 Does it have the technology to support the outsourcing
agreement?
 Economical
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Can they provide the capital needed to function?
 Cultural
 Are they educated?
 Will it be easy to start a business there?
 Language Barrier?
 Political
 Is the Government Stable?
 Mexico, Hugo Chaves
Factors
 Technology
 Nokia Siemens Networks Rating - 5
 “How governments, businesses and consumers in 50
countries make use of connectivity technology to
enhance economic and social prosperity.”
 Cell Phone User Rating - 1
 Communication
 Internet User Rating - 2
 Communication
 High-Tech Exports - 3
 Are they already producing technologically advanced
products?
Factors
 Economical
 Improved Water Source - 1
 Public Utilities
 Transportation - 3
 Moving Products and People around
 GDP Growth - 4
 How is the country doing as a whole?
 Labor Cost - 5
 Are employees expensive?
 GNI Per Capita - 2
 How poor/rich are the citizens?
Factors
 Cultural
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Language - 2
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Ease of Doing Business - 5
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Any Barriers
How hard will it be to find employees and
operate?
Education Level - 3
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Educated? Training cost involved?
Factors
 Political
 Political Stability - 5
 Hugo Chavez?
 Regulatory Quality - 4
 Are they promoting the Private Sector?
 Control of Corruption - 2
 Mexico, Loyal Partners?
 Rule of Law - 3
 Patent Infringement?
 Corporate Tax - 4
 Can I Avoid Taxes?
Data Collection
 First collected the Data
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Then made Factors (same source)
 Good Sources
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CIA World Factbook
The World Bank Group
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Vital source of financial and technical assistance
to developing countries around the world
Research Firms
Textbooks
Analysis
 Step 1
Best Country in Each Factor
 Step 2
 Divide stat by itself and every other country by that same
“best” stat
 Step 3
 Multiply % by importance
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Best Country would receive 100% of the points
 Step 4
Total all points for each Category
 Step 5
 Divide most points by itself and every other country by that
same “best” total
 Step 6
 Multiply each category percentage by 25.
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Example of Data Analysis
Economy
Country A
Country B
GDP Growth %
5%
10%
Best in Class %
5/10 = 50%
10/10 = 100%
Multiply Above by
Importance
50% x 4 = 2
100% x 4 = 4
Best in Class %
2/4 = 50%
4/4 = 100%
Multiply by 25
12.5
25
Findings
Technological
Economical
Cultural
Political
Overall
1 Malaysia
1. Vietnam
1 China
1 Chile
1 Malaysia
2 Chile
2. India
2 Thailand
2 Malaysia
2 Chile
3 Turkey
3 Ukraine
3 South Africa
3 South Africa
3 China
4 Philippines
4 China
4 Chile
4 Turkey
4 Vietnam
5 Russia
5 Philippines
5 Malaysia
5 Vietnam
5 Argentina
6 Mexico
6 Argentina
6 Colombia
6 Brazil
6 South Africa
7 Brazil
7 South Africa
7 Vietnam
7 Ukraine
7 Mexico
8 Argentina
8 Russia
8 Mexico
8 Mexico
8 Thailand
9 South Africa
9 Mexico
9 Brazil
9 China
9 Brazil
10 Thailand
10 Turkey
10 Philippines
10 Thailand
10 Turkey
11 China
11 Malaysia
11 South Africa
11 Argentina
11 Ukraine
12 Colombia
12 Brazil
12 Russia
12 India
12 Philippines
13 Ukraine
13 Chile
13 Ukraine
13 Russia
13 Russia
14 Vietnam
14 Thailand
14 Turkey
14 Colombia
14 Colombia
15 India
15 Colombia
15 India
15 Philippines
15 India
Labor Cost
Labor Cost Ranking
Country
1 Vietnam
2 Ukraine
3 India
4 China
5 Philippines
6 Thailand
7 South Africa
8 Russia
9 Colombia
9 Argentina
11 Malaysia
12 Turkey
13 Brazil
14 Mexico
15 Chile
Advice to Manager
 Outsourcing a technological product
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Pick top 5 in Technological Category
 Outsourcing strictly for processing.
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Vietnam, China, or the Philippines
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Cheap Labor
Limitations
 Data statistics form the same source
 Finding Data from all the same years.
Sources
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